BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 1106 (Fuentes) Hearing Date: 08/12/2010 Amended: 08/03/2010 Consultant: Mark McKenzie Policy Vote: T&H 8-1 _________________________________________________________________ ____ BILL SUMMARY: AB 1106, an urgency measure, would authorize the California Energy Commission (CEC) to contract with small business financial development corporations (FDCs) to expend funds made available for the Alternative and Renewable Fuel and Vehicle Technology Program, if the expenditure is consistent with the program's requirements. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2010-11 2011-12 2012-13 Fund BT&H administration up to $50, minor ongoing special fund costs General* CEC design program up to $50, ongoing costs are minorSpecial* FDC administration costs would depend on amounts allocatedSpecial* to FDCs, and could be in the range of $500 ----------see staff comments---------- Loan Guarantees unknown potential redirection of funds toSpecial* FDCs for loan guarantees that would otherwise be used for other projects. ____________ * Alternative and Renewable Fuel and Vehicle Technology Fund _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. AB 118 (N??ez), Chapter 750 of 2007, created the Alternative and Renewable Fuel and Vehicle Technology Program, which the CEC administers to provide grants, revolving loans, loan guarantees, loans, or other appropriate funding measures to public agencies, vehicle consortia, businesses, consumers, recreational boaters, and academic institutions to develop and deploy innovative technologies that transform California fuel and vehicle types to help attain the state's climate change policies. The program is funded through a variety of fees, including smog abatement fees, vehicle fees, license plate fees, and boat registration fees, which provide over $100 million annually through 2015. The CEC, through a competitive process, allocates these funds to alternative fuel and vehicle technology projects. To set priorities for the allocation of funds, the CEC must develop an investment plan in consultation with a wide array of stakeholders. The CEC adopted its first investment plan at its April 22, 2009 meeting, which included allocations of $176 million, and is now in the process of updating the plan for 2010-11, which includes proposed allocations of approximately $108 million. Existing law authorizes the CEC is to contract with the State Treasurer's Office (STO) until January 1, 2012 to expend program funds as long as those expenditures are consistent with program requirements. Page 2 AB 1106 (Fuentes) AB 1106 would also authorize CEC to contract with FDCs established by the Business, Transportation and Housing Agency (BT&H) to expend program funds through the Small Business Loan Guarantee Program, as long as expenditures are consistent with program requirements. State law authorizes BT&H under its Small Business Loan Guarantee Program to establish small business FDCs that provide guarantees for loans that private financial institutions issue to small businesses. Under the program, loan guarantees cover a percentage, typically 80 percent, of the loan balance and interest upon defaults and provide security to banks for investments that banks may not otherwise issue. BT&H has designate 11 non profit FDCs that operate in the state to market and coordinate the packaging of the loan and loan guarantee applications between the small business and financial institution, issue the loan guarantees, and ensure that lenders have followed required procedures before requesting payment on defaulted loans. The loan guarantee program has historically been funded by General Fund appropriations, but these resources have been severely cut back in recent years due to the state's fiscal crisis. The program is likely to receive approximately $1.7 million in General Fund revenues in 2010-11. This bill would expand the opportunities for CEC to partner with other entities in the allocation of AB 118 funds, providing another avenue for implementing projects and activities identified in the Financing Plan of the Alternative and Renewable Fuel and Vehicle Technology Program. While AB 1106 does not require CEC to contract with FDCs and supplant other efforts, the bill could represent a redirection of funds to FDCs that would otherwise be used for other eligible projects. The CEC indicates that expanding financing options may allow for program efficiencies. Prior to contracting with FDCs, the CEC would need to dedicate extensive time to coordinate with BT&H staff to design a program and determine which projects in the Financing Plan would be most suited for financing through an FDC. CEC indicates these coordination duties would be absorbable, but also recognized that the staff time involved would be substantial on the front end, similar to coordination efforts with the STO. Staff estimates this could be the equivalent of PY of CEC staff time at a cost of approximately $50,000, as well as an equivalent amount of staff work at BT&H. It is unknown whether administrative costs associated with financing projects through FDCs would be higher or lower than financing projects through the STO or administering projects directly through the CEC. The Financing Plan indicates that CEC would fund up to two percent of total annual allocations for administering the program. Financing projects through the FDC program may increase administrative expenditures. Financing projects through contracts administered by FDCs would require some administrative oversight by BT&H staff, as well as local assistance provided directly to FDCs to market and administer loan guarantees. Actual costs would depend upon the amount of resources provided by the CEC for FDC loan guarantees and the demand for loans. Staff estimates that if $10 million were made available for FDC loan guarantees, up to $500,000 may be dedicated to BT&H and FDC administrative costs.